Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to the Q4FY22 earnings conference call of Dr. Reddy's Laboratories Ltd. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal, Head of Investor Relations. Thank you and over to you, sir.

Thank you. Very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter and full year ended March 31, 2022. Earlier during the day, we have released our results and the same are also posted on our website. This call is being recorded in a playback and transcripts shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statement. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Mr. J.V. Prasad, our co-chairman and managing director, Mr. Erez Israeli, our CEO, Mr. Parag Avirwal, our CFO, and the investor relations team. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlets without the company's express written consent. Before I proceed with the call, I would like to remind everyone that the fair also pertains to this conference call. Now, I hand over the call to Mr. J.V. Prasad. Over to you, sir.

Thank you, Amit. Good evening and good morning and welcome to all of you to this earnings call. Ifcon 2022 has been quite a challenging year. It started with the severe wave of COVID in India and ended with heightened geopolitical conflicts, and many more. I'm proud that despite all these challenges, our team has delivered very good operational results. Over the last few years, we've been able to grow on a consistent basis and the key highlights of this year are healthy revenue growth with steady margins, good progress on the productivity journey, some meaningful launches of products across market, Enhanced offering of the much-needed COVID products and closure of a few significant business development deals. Our priorities for FY 2023 will be to strengthen our product pipeline across markets, focus on enhancing our quality systems, continue with the productivity agenda, and make value-accretive inorganic modes. While we continue to focus and grow our core businesses, we will also invest in creating future growth drivers, Our CEO Erez would cover these aspects in some detail. Sustainability is another area we have made significant progress, but there is a lot more to do. We are on a journey to integrate sustainability into our core business strategy and the execution system. We have identified multiple areas where we can work towards improving the environment and the societal benefit. Shortly we will announce our detailed ESG targets for the long term. We continue to be driven by our credo of good health can't wait and we keep the interests of our patients first and will continue to serve them in every possible way with utmost urgency and diligence. To this I hand over the call to Parag for taking you through the financial performance of your company.

Thank you Prasad and greetings to everyone. Hope all of you are keeping well. I am pleased to take you through our results for the quarter 4 and full year of fiscal 2022. It is yet another year of good financial performance with growth in sales and EBITDA and a strong cash flow generation from operations. While we faced several headwinds during the year, we mitigated these through productivity initiatives and a few one-time opportunities. Let me take you through the key financial highlights for the quarter and FY22 in a bit more detail. For this section, all the amounts are translated into US dollar at a convenience translation rate of 75.87, which is the rate as of 31st March 2022. Consolidated revenues for the quarter stood at 5,437 crores, that is US dollar 717 million, and grew by 15% year-on-year basis and by 2% on a sequential quarter basis. The growth has been driven by all markets in our global generic segment and direction of a few non-core brands. The revenues for the financial year 2022 stood at Rs. 21,439 crores, that is, US$ 2.83 billion, and grew by 13%. The growth was supported by improvement in the big business volume and new product launches. Consolidated gross profit margin for this quarter has been 52.9%, A decline of 80 basis points year-on-year and 90 BPS on quarter-on-quarter basis. While the gross margins benefited from brand divestment income, the decline was primarily attributable to pricing pressure in North America and Europe, combined with the effect of increasing commodity prices. We also had higher provisioning for inventory, including for COVID-related products. Gross margins for the global generics and PSAI business were at 58.2%, and 18.4% for the quarter. Gross margin for FY22 has been 53.1%, which is a decline of 120 basis points over FY21. Gross margin for the global generics and PSAI business were 57.6% and 22.2% for the year. The SGM spent for the quarter is Rs. 1,567 crores U.S. $207 million, an increase of 9% year-on-year and 2% quarter-on-quarter. During the quarter, we made a provision of Rs. 98 crores towards an old outstanding litigation with the State of Taxes U.S. Adjusted for this charge, we were in line with normalized level of spend. The LG&A spend for the year is Rs. 6,208 crores, that is U.S. $818 million, and has grown by 14% in line with business growth. The SG&A cost as a percentage to sales was 29.0%, which is largely in line with previous year. While we will continue to drive productivity, in parallel we would also invest in markets to strengthen our brand's positioning, expand market reach in various channels and new countries, continue digitalization agenda, and nurture new businesses. The R&D spend for the quarter is Rs. 433 crores, that is US$57 million, and is at 8% of sales. The R&D spent for FY22 is Rs.1,748 crores i.e. Rs.230 million. R&D percentage to sales for the year stood at 8.2%. While we optimized the spend in proprietary products business, we have enhanced our pipeline and correspondingly the spend for generics, biosimilars and MCEs. During the quarter, we took an impairment charge of Rs.762 crores i.e. Rs.99 million. The impairments were largely pertaining to First, product related and intangible for PPCO 6 from proprietary product segment wherein the market potential is reduced. And secondly, Shareport subsidiary related assets as there has been a substantial reduction in the cash flow of products forming part of the subsidiary. The EBITDA for the quarter is Rs. 1298 crores that is US$ 171 million and the EBITDA margin is 23.9%. The EBITDA for the year is Rs. 5,140 crores i.e. US$ 677 million. EBITDA margin for the year is at 24.0% and is closely tracking our expiration target of 25%. Our profit before tax for the quarter stood at Rs. 248 crores i.e. US$ 33 million and that for the year stood at Rs. 3,230 crores i.e. US$ 426 million. Adjusted for the impairment and the taxes litigation charges, our profit before tax for the quarter grew by 37% and for the year by 17%. Effective taxes for the quarter has been at 64.8% and that for the year has been at 27.0%. The ETR was higher due to an impact of impairment charges taken. We expect our normal ETR to be in the range of 24% to 26%. Profit after tax for the quarter stood at Rs. 88 crores, that is, US$ 12 million, and that for the year stood at Rs. 2,657 crores, that is, US$ 311 million. Reported EPS for the quarter is Rs. 5.26, and that for the year is Rs. 141.69. Operating working capital increased by Rs. 444 crores, which is US$ 59 million, against that on December 31, 2021, Namely driven by increasing receivables and inventories. Our capital investment stood at Rs. 374 crores which is US$ 49 million in this quarter and Rs. 1466 crores which is US$ 193 million during the year. The free cash flow generated during this quarter was at Rs. 42 crores which is US$ 64 million. The free cash flow generated during this year was at Rs. 1157 crores which is US$ 152 million. Consequently, we now have a net surplus cash of Rs. 1,545 crores, that is US$ 204 million as on March 31, 2022. Foreign currency cash flow hedges in the form of derivatives for the US$ are approximately US$ 342 million, largely hedged around the range of Rs. 76.5 to Rs. 79.4 to the dollar. Ruble 9.6 billion at the rate of rupees 0.9299 to the ruble Australian dollar 4.4 million at the rate of rupees 55.38 to Australian dollar and South African Rand 1.22 million at the rate of rupees 4.83 to South African Rand maturing in the next 12 months. With this I now request Erez to take you through the key business highlights. Thank you Faraj.

Good morning and good evening to everyone. As Prasad highlighted, the FY22 has been quite a challenging year, yet it has been fulfilling. We rose to the challenges and have been able to deliver steady and sustained performance. We have revisited our strategy to cater to the new opportunities and mitigate risk. Our financial strength of strong balance sheet creates an opportunity for us to grow in the current business environment. Let me take you to some of the key highlights of the year. One is strong growth across branded markets of India and emerging markets. Steady growth across generics markets. We regained milestone revenue of $1 billion in North America generics. Improved market share in most of our major markets. EBITDA and ROC in the range of our aspirational targets. Generation of strong free cash flow leading to a net short loss of more than $200 million. Entered high growth space of medical cannabis business in Germany through acquisition of Nemo Health. Exclusive collaboration with Novartis for in-licensing of key brands in India market. And significant progress made in our digitalization and sustainability journey. Additionally, we continue to focus on productivity while simultaneously making investments to strengthen our pipelines and capabilities. While our core business of generic and IPL will continue to drive growth in the near and mid-term, that is what we call Horizon 1, we are encouraged to witness several incremental opportunities such as scaling up of our existing small-sized businesses and creation of new business models for a long-term growth. That is, for us, Horizon 2. Our financial strengths allow us to grow and invest for both Horizon 1 and Horizon 2 businesses. Now let me take you through the key business highlights for the Q4 as well as the full year of 2022. Please note that all references to these numbers in these sections are in respective local currencies. Our North America generic business recorded sales of $265 million for the quarter, with a strong growth of 11% year-over-year and 7% non-sequential business. On a full year basis, we recorded sales of $1 billion and $3 million, with a growth of 6% over the previous years. This growth was largely led by key new product launches such as Icosapant and InsopGel, and Vaso Pressings for Injection. We were able also to grow market share for many of our existing products which helped to partially mitigate the impact of the price erosion. We launched three new products during the quarter and overall 17 products during the year. We expect the launch momentum to further improve in FY23. Our Euro business recorded sales of 53 Thank you very much. In the full year, we had 34 new launches across our market in Europe. We expect this strong launch momentum to continue in April 2023. Our emerging market business recorded sales of 1,201 crore rupees with an year-on-year growth of 36% and a sequential quarter growth of 4%. On a full year basis, emerging market sales has been 4,567 crores rupees and grew by 30%. We launched 16 new products during the quarter and 86 new products during the year across various countries of the emerging markets. Within the emerging market segment, the Russia business in Q4 grew by 87%. On a year-to-year basis and 62% on a quarter-to-quarter basis in constant currency. In FY22, Russia's business grew by 38% in constant currency. This strong performance in Russia was partially led by divestment income of two brands and higher Q4 sales on account of stocking up, which we expect to normalize during the coming quarter. The current war situation in Russia and Ukraine raised several business uncertainties and a significant fluctuation in the currency rates. We have managed the situation very well and ensured the safety of our employees, continuity of the business operations, and financially securing the near term with effective hedging. Our India business recorded sales of 969 crores rupees. with a year-over-year growth of 15% and sequential decline of 6%. On a full year basis, our sales was 4,196 crores rupees with a strong growth of 26%. During the quarter, we launched eight new products in the Indian market. After the Acuva report of March 2022, we ranked number 11 on the monthly basis. India remains our priority market and we are committed to continue to grow this business at a healthy rate. Our PCI business recorded sales of $100 million with an annual decline of 8% and sequential growth of 3%. On a full year basis, the sales were $411 million with a decline of 5%. During the era, there has been normalization in the channel customer stock level after the upticks in FY21. We believe that the customer stock levels are now back to pre-COVID level and we should witness steady growth in the business in FY23. On the R&D front, our focus has been on building a global pipeline of value-assertive products, including several generic injectable biosimilars. We are also selectively investing in few NC products candidates. While the number of products firing in the current year has been slightly lower, however, we are on track to accelerate this in April 2023. Additionally, we are prepared to leverage our balance sheet strengths to invest in value-added, inorganic moves. I would like to remind that there are several factors which have an impact on the short-term performance of the company, including evolving geopolitical situation and higher commodity price. However, I'm confident that we will emerge stronger with every challenge. We do see opportunities in the current situation and are readjusting our strategy to cater the new opportunities for future growth. In the coming months, we will be holding our investor rate and thank you to the growth leaders for Horizon 1, Horizon 2 and our approach and goals towards ESG. With this, I would like to open the floor for questions and answers.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use answers while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Ankush from Access Securities. Please go ahead.

Hello. So my question is that about the U.S. business. So how much of the sale is contributed by the new launches for FY22 and last year?

So the growth is uttered by two factors. One are new products, and I noted two of them, cost of plant and vasopressin, as well as growth in market share of existing products. and both of them contribute significantly to the growth.

So can I say that it's a thousand million dollar sales in the US market for the full year that the new launches has contributed, how much sales new launches has contributed, if you quantify, sir? And how many new products that we are looking to launch next year?

So overall, as you know, the price erosion in the US business So the momentum will continue. This year as you know in North America we launched 17 products. We expect to launch about 20-25 new products in the year 2023.

So the last one, what is the strategy for the Indian markets? How we are looking at the launch of new products, basically the growth in the Indian markets?

We will continue to launch similar numbers of products like this year. At the same time, the main growth in India will come First of all, the growing of the brands that we are investing behind that will continue to generate the main growth in the markets. Second, the inorganic moves that we already disclosed, as well as additional moves that we are working on as we speak. In addition to that, we will have new products that will come as part of the pipeline, which are about similar numbers that we had this year. In addition to that, this is what we call Horizon 1. As part of Horizon 2, we are going to have additional moves in the area that we will disclose more during the investor day, but this will be in the area of activity that we have SWAT, which is our outpatient initiative, as well in the areas of nutrition, biologics, activities, and digital. Overall, India is a major market for us and will continue to be a focus market for us for many, many years to come.

Thank you, sir. Thanks so much.

Thank you. The next question is from the line of Kunal Damesha from Macquarie. Please go ahead.

Hi, congratulations on the good sort of numbers and thanks for taking my question. So the first question is related to the COVID contribution for FY22. If you can give a broader idea what contribution in terms of revenue was from the COVID or related products, especially on India side and emerging market side.

So the contribution, as you know, both India and emerging markets have grown this year in strong double digits. A good amount of this growth came from COVID, but even after excluding the impact of COVID portfolio, both these markets still recorded double-digit growth. So overall, I would say for the company as a whole, the contribution of COVID product sale overall is less than 4%.

Sure. And for the India market, barring the inorganic activity, which is when it happens, when it happens, What is our organic growth target for FY23? And if you can just broadly give the growth drivers and the pricing volume. I think new products we are already aware, but would pricing be a very significant driver for us this year?

As you know, we are not guiding the industry level of details. But we are expecting India to continue to grow organically in the digital semester.

Okay, thank you. And the second question is on the capital expenditure for FY23. This year we had some good amount of capex, I think, for the Europe facility. But what would be the guidance for FY23?

So for FY23, For FY23, we expect the capital expenditure overall to be at similar levels around somewhere between 1500 to 1700 crores.

And I believe that that would mean some additional facilities. So for which geography and for which injectable or oral solids, which kind of dosage form we are looking at.

We are not anticipating a need for additional facilities. The investment is primarily in the facilities that we have. FTO 11, which are coming up, injectable facilities that we are investing in it, actually quite a lot in the last couple of years will be one place of investment. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Thank you for taking my question.

It is on the emerging market business. One, if I were to look at emerging market X, Russia and Ukraine, that seems to have come off significantly for what we were doing in the first three quarters. I understand there's some amount of COVID contribution. Is it fair to assume that the runway that you have done in this quarter is the base on which we will grow? Or is there any one-off or deferment of shipment that we should keep in mind?

No one works in those markets. These markets are growing very, very well and will continue to grow in that level. Just if you recall, we discussed that part of the strategy is to take our portfolio globally. The EM is actually doing it well, especially on the injectable side. So the EM will continue to grow, including smaller markets, Based on the leverage of their portfolio as well as local brands, but primarily the leverage. Understood. It is indeed a nice contributor to the box.

And on Russia, normalizing for the stocking up that we would have seen in the quarter, in the recent weeks, have we seen any change in the demand patterns there or We believe that Russia is an opportunity.

Especially as some of the players will not invest in marketing their products over time. And we will continue to operate this as usual. What we don't know of course is what will be the impact on the overall economy of Russia. This is of course something that we yet to be seen.

Fair enough. And my last question is on margins. So if I were to adjust all the one-offs, we did about, you know, 21% margin in the quarter. I understand there is rev limit that is coming, you know, generic rev limit that is coming through, but core margins excluding rev limit. Is this the base or, you know, given the investments that we have planned, do you think, you know, margin expansion from here would be tough ex-rev limit?

We believe that the number is higher than the number that you mentioned. The way I see it is actually 24%. And we believe that we want to stay in the neighborhood of the guidance that we gave in the past. So we are comfortable with 25-25 and we will be in that area as we want to take whatever additional resources we have for investment in the future. We are maintaining our ability, and we believe that we can, for both maintaining this level of profitability, as well as to invest in the future, especially in our case in Washington.

And just to clarify that, you maintain the level of profitability even excluding revlimits?

We are not guiding with with and without because naturally first we don't and second I wish I knew exactly what will happen so you know that. But let's say long term no matter what will be the scenario we are absolutely aiming for the same level.

Good. Thank you so much Erez.

Thank you. The next question is from the line of Surya Patra from Philip Capital. Please go ahead.

Thanks for this opportunity.

The first question is on the cost front. So, despite all the challenges, what we have seen, we have managed to deliver strong gross margins and all that. So, going ahead, given... Do you think any cost challenges that we will be facing incrementally given the supply shortness that is likely to be seen given the Chinese lockdown and all that? That is one. And secondly, you have talked about the phase one growth, what we have already seen, and you are designing and devising a phase two kind of growth phase for Dr. Reddy. with new product launches and specialty offerings and all that. So whether in the phase two we'll see a kind of challenging phase in the initial period in terms of cost given the higher expenditure around the development and all that. So something on the cost front, how would that be really shaping up and how would that be having impact on the overall margin for Dr. Reddy?

So like everybody else in the industry, we are facing some increase of cost, whether it's commodity prices, as well as in things that are related to logistics, transportation, and stuff like that. And it's unfortunately not the first quarter that we see that. It's something that we've gradually built up since COVID. But we absolutely saw an intensifying increase We were able to mitigate most of it by first of all having a very effective supply chain so we are not dependent on any specific territories whether it's geography or specific vendors and we are able to maintain the competitive procurement Our logistics is primarily done by sea and less by air and this is allowing us to mitigate some of those challenges. We are moving into overtime to renewable energy. This is mostly a need to long-term natural initiative. I think this is enabling us also to deal with the energy potential future challenges. So we may see a certain Let's say the cost may fluctuate from a quarter to quarter, but long term I believe that we are well set to mitigate the challenges.

Okay. The second question is on the U.S. growth front. You have been continuously mentioning that double digit kind of price that is kind of the norm in the U.S. business front. So in the recent past, our trend towards U.S. also has moderated because we are prioritizing the non-U.S. markets for growth. So given that, and the continuing price erosion scenario, so is it fair to believe that ex of red limit we may see a flattest kind of U.S. performance? Any sense on that, sir? I'm not asking about any guidance, but...

So our U.S. business will grow and from time to time we'll have launches and additional other activities that we do. And that's what we also did in the last 11 quarters. I believe that we grew 9 out of the last 11 quarters and this is before even we ever even made. And this is likely to continue. We may, because of timing of those watches, we may see also fluctuation in the sales in the United States. But overall, I believe that on the annual basis, we will grow in the United States in the coming years. In addition to that, we are investing in the building platforms that are outside of the business model that allow us also to grow long-term in the United States. We want to stay in America. We believe in America. America will continue to be an important market for us. In the generic segment, likely to not grow, likely we will grow outside of the U.S., but other growth drivers that we are now working on absolutely will continue to grow in America in the same way that we are growing in other places long term.

Okay. Just last one, sir. On the inorganic growth trend, when you mentioned about that, are you talking about only inorganic growth within India or it is even you are open for international activity also in the areas that if it is there, then the areas that you would be interested in? If you can just say something there.

We are open to inorganic moves in every one of our stations. In terms of preference, India is absolutely a preference. And in terms of what kind of development we prefer, product acquisitions as a complementary move to the spaces that we put as a focus in our start-up business. Most of our inorganic activities were around products. We are naturally disclosing those that are relatively big, but we are all the time working to strengthen our portfolios through inorganic and e-licensing activities. In terms of... We are also preparing not to make a kind of big acquisition, but rather... Thank you. Wish you all the best. Thank you.

The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead.

Yeah, hi. Good evening, everyone. So my first question is around the Russian market. In line with the global sanctions that the West applied on Russia, we came across many media articles in which many global innovator companies, they are either withdrawing from the Russian market or they are curtailing their operations there. So have you had any discussions with the procurement ecosystem in the Russian market that this could be a fairly structural and substantial opportunity for Dr. Reddy's given your legacy presence in the market? Obviously, there are challenges currently, but still, I mean, could this emerge as a long-term three to four-year structural opportunity for the company?

So we see that as a... We do see that as an opportunity for us. We cannot discuss now any specific discussions, but it's absolutely one of the avenues that we are discussing as we speak.

Okay. Okay. And second question is on the broader U.S. outlook. So two questions related to the U.S. One is on the opportunity next three years, excluding the development. How do you see the addressable opportunity in terms of brands losing exclusivity next three years versus the preceding three years period?

Without Avila Med, we do see it in the same way that we saw it this year. We have, in addition to this, as Farah mentioned, 25 new launches, which will not be only as sizable as Avila Med, but will contribute to us. And I believe that the price erosion will continue. So in that way, I don't think that things will change dramatically for us.

Okay, got it. And then one final question is to the US market. Just now in one of the earnings calls concluded for one of the previous questions was asked, I'm just repeating that question again. Progressively, quarter on quarter, we've seen the margins and the return ratios getting depressed in the US market. Now with the added pressure of cost inflation. Any color can you give as to till what time can this pain continue Before rationality kicks in, I mean, in the past we have seen global companies withdrawing, but do you think that even the Indian companies, which today are at $100 to $130 million kind of a sales space in the U.S., they also might have to pull out or curtail their ambitions in the U.S. market? Do you think we have reached that stage that that pain has to be somehow mitigated?

I will answer this question. I think the U.S. market will always remain price competitive. There's always been pricing pressure. It's not new and it will not end. It will continue. It depends on how well you choose your portfolio, how well you execute it, and how competent you are to continue to establish your presence there. And we are taking a number of steps to strengthen our portfolio, lower our costs, improve our market share, and we hope to continue to grow in the U.S.

The U.S. will stay an important market for us. And as I mentioned, we want to be stronger in the genetic space, but we are also working on moves outside of that area.

I think it is, I mean, I kind of understand that. I mean, you have made your strategy quite clear. I was just hoping to get some comments on how do you see the competition reacting to the current Thank you. The next question is from the line of Prakash Garwal from Axis Capital.

Please go ahead.

Yeah, hi, good evening to all. Couple of questions. First on the COVID-related products, you mentioned this 4% contribution, but is there any write-offs which we might have taken at the inventory level in the full year or the quarter?

Any inventory provisions related to COVID, there are some write-offs, but they are not significant overall. And the overall inventory levels we are carrying for our COVID products are also not material. They are obviously stocked up adequately to meet any potential demand. But the overall levels are not material.

Okay, when you say not material, I would understand it would be under 1%.

I wouldn't put a number to it. It is not material in the overall context of our business. We will not confirm or deny that.

Okay, so got it. And secondly, on the propriety business that we have built over years, I understand most of the assets are largely either outlicensed or a couple of them have been discontinued. So going forward, what is the income stream for this? One is I understand the milestones. But we don't have anything in the channel for future new out licensing. Would that be correct understanding?

On the specialty side, there's nothing significant out there. There are some single digit income streams which will continue. Single digit million dollars. But beyond that, there's nothing much left.

Because, if I'm not wrong, this has contributed significantly in terms of out licensing which has flown down from gross margin to EBITDA. and has contributed significantly at the margins. Correct me if I'm wrong, and if not in future, then given your commentary on raw material prices and etc., cost inflation, this would be an extra margin pressure point for us. Would that be correct?

Let me clarify maybe. First of all, on specialty, we have two parts. We have those products that... that we discussed that were in the form of IFO-5P2 for the United States. As you stated rightly so, most of them were licensed or discontinued. And as we speak, we are enjoying certain levels of royalties as well as future milestones that may come. And then we will enjoy the income We have also activities that are related to NCE. This is what I mentioned in my script that we are selected to invest now in certain anti-cancer products as part of our subsidiary of Origin Discovery. And this is more of a long-term investment. We are also licensing and have collaborations in the United States with partners and we are working both to license those products as well as maybe one day in the future to do it ourselves. In terms of contribution to the margin and stuff like that, I think we had indeed a Free form licensing in Q2. In Q4, there was no activity as such.

The last point was not clear. Would it impact some margins?

I don't know any margins. There is no activity, therefore no impact on the margins. I'm not sure I got it right, but okay. I just have one more question. Maybe I did not get your question. What's effective on margin and by when?

So, Prasad, what Erez mentioned is basically in quarter 4, there was no licensing income we have received. So, quarter 4 numbers are without any margin benefit.

Okay. And that run rate is also like the 69 crores is the ongoing propriety sale. So, that can continue. Okay. Proprietary plus origin, it is combined. Okay, so that can continue and if there is lumpiness, that might not continue.

There will be lumpiness. It is not a smooth curl because these are milestone driven.

Okay, got it. Fair enough. And lastly, sir, on the two good products that you have, so Vespa and Vespasin. Vasoprasad. So these have seen market share inching up but not to the level that one could have expected. So is there a scale-up issue or we expect or you have already achieved the fair share and we are not able to see in the database?

We believe that we have a good share in this program.

And we can't go granular numbers to you.

Have you achieved the fair share, sir, on Vesapra? 15%? 13-15%?

We have a very good share on this product.

Okay. And since it is a recent launch, Vesaprasin, this is still under the scale of phase. Would that be correct understanding?

We have also a good share on this product.

Okay, sir. Thank you. Thank you and all the best.

Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Hi, thank you so much and good evening everyone. Most of my questions have been asked but just a couple of them more. One is what's the current exposure to Ukraine market and are we holding any receivables over there?

So the level of exposure is not material and the and there is no any material adverse events or significant adverse events that we anticipate in the future.

Okay, great. Thank you. And as you mentioned a couple of times that for the US market, you are putting in some effort outside of the generic business. So can you elaborate on that? Was it the NC effort or is it something else?

We will elaborate more in the investor day, but we are, as we speak, exploring other channels that are not exposed to the current business model in the United States. Of course, high-level price erosion that needs to be mitigated by products. So we are exploring and even dealing with opportunities that it's, let's say... are not part of that business model.

Okay, great. So we will wait for the details. And the other question, Erez, is two efforts that you have put in in India. One is Sputnik vaccine and the other is outpatient online healthcare platform. So if you can update us on both of these. Thank you.

Sure, sure. On Sputnik, the main effort is on Sputnik Light. We got approval for Sputnik Light as a vaccine and as a booster for Sputnik vaccine. And we are now conducting a trial that we will have the result next coming weeks as a vaccine for other products, for other vaccines in India. We hope to obtain approval for that. This will allow us to compete on the entire Indian market, potentially, if we get approval. The second effort that we did on Sputnik is that we repackaged the product to India, so all the activities on Sputnik are now in India. We are now dependent on Russia in any shape and form for that effort. In the second class, on SWAS, we are scaling up. We are adding more and more cities in the metals, and it's a scale-up mode. So far, it looks very, very promising, but naturally, it's an early stage for this initiative project. But it looks very very promising in the service and Deepak's so far is positive.

Okay, great. Thank you so much and we look forward to your analysis. Thank you. Thank you so much.

Thank you. The next question is from the line of Vishal Manchanda from Nirmal Bank. Please go ahead.

Thanks for the opportunity. With respect to the two brands that you divested in Russia and CIS, Ciprolet and Levolet, can you share what's their contribution since sales from these brands did not record going forward?

Sorry, contribution? I couldn't catch the question. What is the contribution of the divestments in Russia?

Levolet and Ciprolet.

Sale of these brands.

That would be about 50 to 60 crores per annum.

Yeah. and even without these brands coming in, contributing next year, you would grow double digits in these markets. Yes. And just one more on Rituxan BioCellulose. Two things. One, when do you expect to file that? And second, whether you are trying to do an interchangeable on that?

Rituxan has...

So, we are looking to reduce the MAP to enhance the potential 2024 events. I'm talking about calendars.

And are you attempting an interchangeable on that?

Interchangeability?

Yes, of course. So, subsidiary, but... Is that right?

This is a biosimilar that should be competitive with the rest of the biosimilars of the taxonomies.

Okay. And just one more on China. Can you share how many approvals have you got under the QCE framework so far and how many of those have been commercialized?

This year, we actually filed for 11 products and we received three approvals during the year. And overall, we are expecting to launch about seven products. How many, sir? Seven.

Okay. Thank you.

Thank you. The next question is from the line of Nitin Agarwal from Dam Capital. Please go ahead.

Hi, so thanks for taking my question. So my question is one on Voveron. What opportunities do we see on this product given the fact that this molecule has been under some growth pressures in the past? Which molecule? Voveron that we acquired from Novartis for the India market.

So we see this as an important opportunity for us. First, we will repatriate into our Indian facility and we believe that our co-structure will allow us to be competitive. Second, it's an area of focus for us, the diabetics as well as cardiovascular, the area of chronic diseases. A segment of disease was always a focus for us and this is an opportunity to bring a familiar brain to the physicians that we are visiting anyway. And we believe that our margins will enable us to even grow these molecules in the future.

And secondly, Parag, you know, in the press release, you've called out for the gross margin pressure, some amount of inventory provisions. Can you just give us some sense and what would have been the quantum of these inventory provisions that would have hurt the gross margin this quarter?

So overall, I would say the impact on the gross margin is not significant. It will be less than 50 basis points from the inventory provisions. Okay.

Thank you and good luck.

Thank you. The next question is from the line of Vinod B from INCRED Capital. Please go ahead.

Hi, I have much of my questions are answered. Just to follow up on Russia, so could you make a few comments about how the business has changed before the war started and after that, especially in terms of logistics, payment, etc. So are you able to get products across easily into Russia? and how are you managing the payment mechanism out of Russia, etc.?

Sure. So let's start with the basics. We are shipping products to Russia and we are getting money from Russia. And the logistics within Russia is similar to what was before. We had to adjust our channels. Airlines or other logistics needs to ship to Russia, but we do not see any issues with it. We just have to work on solutions for that. And as for a payment and stuff like that, actually we saw no disruption. In terms of within the market, We are not aware of anyone that actually left the market. Probably there will be less investment in the market, but we are not aware of anyone that actually left. They changed significantly the competitive landscape. It's probably something that will happen, but as we speak, we do not know. Okay, got it. Thank you.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Amit Agarwal for closing comments.

Thank you everyone for joining us today for the earnings call. In case of any further questions, please get in touch with the investor relations team. Thank you.

Thank you. On behalf of Dr. Reddy's Laboratories Ltd, that concludes this conference. Thank you for joining us and you may now disconnect your lines.